Cryptocurrency Influencers' Advice May Not Be Profitable In The Long Run, Study Finds

According to PANews, a study conducted by researchers from Harvard Business School, Indiana University Business School, and Texas A&M University has found that the long-term investment value of tweets from cryptocurrency influencers, also known as KOLs, is minimal. The study analyzed approximately 36,000 tweets from 180 of the most famous cryptocurrency social media influencers over a two-year period ending in December 2022, covering more than 1,600 tokens. The key findings of the study were obtained by using machine learning to classify tweets and conducting various statistical descriptions and tests to track the tokens mentioned in the tweets and their subsequent price performance. The study found that tweets from cryptocurrency influencers initially correlate with positive returns. However, these tweets later showed significant long-term negative returns, indicating that their long-term investment value is minimal. The study also found that when tweets have more positive sentiment or are related to 'buy' recommendations, the pattern of results is stronger. For example, the average return rate for a tweet promoting a particular coin is 1.83% in one day and 1.57% in two days. However, the return rate starts to decline significantly five days after the tweet is published, with an average return rate of -1.02% from the second to the fifth day. This suggests that more than half of the initial increase is eliminated within five trading days. From a longer-term perspective, the average cumulative returns 10 and 30 days after the tweet are -2.24% and -6.53% respectively. A rough estimate indicates that an individual investing $1,000 in a non-top 100 cryptocurrency token on the tweet date and holding the investment for thirty days would result in a loss of $79 (7.9%), an annualized loss of 62.8%. The study concludes that the long-term investment advice provided by cryptocurrency influencers is generally unprofitable. Only by exiting the position immediately after the tweet is published can profit be made, but this strategy may not always be feasible due to insufficient market liquidity. Furthermore, this immediate sell-off behavior contradicts the 'never sell' culture in the cryptocurrency community. The study suggests that investors should be cautious in following the investment advice of cryptocurrency KOLs, as most of the gains disappear shortly after the tweet is published. However, the authors of the study also acknowledge that the evidence is not conclusive. Cryptocurrency KOLs may simply be chasing trends or promoting tokens that will earn them the most fame and followers, thereby benefiting them economically.